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Nobel Laureate criticises IMF's policy on LDCs

International Monetary Fund came under bitter criticism from the World Bank for recommending belt-tightening measures in the budgets of crisis-ridden least developed countries, which were contrary to the apex bank's prescription for reducing poverty and stepping up development.

The clash between two Bretton Woods institutions surfaced during the release of a book by Nobel Laureate and former chief economist of World Bank, Joseph E Stiglitz, who criticised IMF's approach to deal with crisis situations in developing nations.

The book, titled 'Globalization and its Discontents', said IMF, which has to save economies from going down the drain, automatically recommends austerity, cuts in the budget, tightening of the belt and other measures.

This undermines the World Bank's mandate on abolition of poverty, spread of education and other measures requiring funds which the IMF's conditionalities would deny, it added.

The Fund maintained that the belt-tightening will make sick countries attractive again to investors in the long run, to which World Bank arguement was that "in the long run we are all dead".

IMF's chief economist Kenneth Rogoff blasted Stiglitz during the book launch, saying his ideas were "at best highly controversial, at worst, snake oil" and added that his policy prescriptions was likely to worsen problems of countries by fueling inflation rate.

The former World Bank economist, however, said IMF erred grievously by demanding cutbacks in budget deficits and increase in interest rates by governments undergoing crises.

Disputing the IMF's logic that higher interest rates and lower deficits help restore financial calm in a crisis-ridden country by making it more attractive for investors, Stiglitz said such policies cause recessions to worsen and increases the likelihood of investors fleeing the country.

"It was not just that IMF policy might be regarded by softheaded liberals as inhumane… Even if one cared little for those who faced starvation, or the children whose growth would be stunted by malnutrition, it was simply bad economics," Stiglitz said in his book.

But Rogoff, defending IMF views, said: "When an almost bankrupt government fails to credibly constrain its fiscal deficits, things generally get worse instead of better."

The clash between World Bank and IMF economists became personal with accusation that a top IMF executive joined a leading multinational bank allegedly after prescribing policies that benefited financial firms at the expense of poor countries.

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